Non-banking financial company (NBFC) is financial institutions which are
registered under the Indian Companies Act of 1956. The operations of these
institutions started in 1960s but their significance increased only after 1991
and now they have become a crucial part of financial system of India. The
financial services which NBFCs provide are somewhat like banks, for example it
can grant loans and advances but the major difference between the two is that
NBFC cannot accept demand deposits.
The ongoing health crisis has overpowered the country, the severe impact of
which can be seen through the economic effects which have crept in due to the
Covid-19 pandemic. The setting up of the para banks to these risky sectors in
these COVID times has made these sectors more weak and they are not able to
fight against this sluggishness in the economy. These bank’s liquidity has been
pulled down immensely because the quality of the assets has been weakened at
such a rate that it is very tough to recover.
This paper will try to analyze the impact which the liquidity crisis has caused
upon the different classes of non-banking financial companies (NBFCs) along with
the impact on the segment which comprises borrowers whose economic activities
have been disrupted. Due to this wave of the global pandemic, real estate and
micro finance has witnessed bust in their respective sectors when it comes to
consumption and other economic activities as a result the loan exposure which
was provided to these sectors by NBFCs has also been worst hit. Moreover, the
liquidity stress has been exacerbated because new capital cannot be approached
and the losses in loan are increasing.
The current pandemic has caused problems for all corporate sectors that have
discharged NCDs but this crisis has put the non-banking finance companies (NBFCs)
in an unusual problem. Earlier this year, RBI issued a direction which extended
the moratorium period on the loans given by NBFCs till 30th June, 2020 which has
significantly affected their receivables in that time period. Moreover, a
restriction has been imposed on the NBFCs under which they cannot classify the
accounts of borrowers who have defaulted as non-performing assets.
Simultaneously, they are still required to keep paying the principal along with
interest which is accrued on their NCDs during this period of three months.
The NBFCs are usually dependent on the debt capital markets and banks for their
generation of funds for further lending as unlike banks, they are not allowed to
accept deposits from the public. Due this reason, any delay or extended
moratorium period provided to the borrowers of NBFCs has a direct and severe
repercussion on its capability to service their financial obligation. If NBFCs
call for any defaults then it will act as a catalyst which will set off the
cross-default clauses across other financing contracts which will increase the
chance of systematic default across the whole of Indian financial sector.
After 2008-09 financial crises, the NBFC’s in India had been floating up to 2017
lately. Although in 2019, defaults which were committed by NBFCs in India
agitated the whole commercial banking sector which lead to antitrust in the
borrowers and shook the entire sector which leads to the shortage of the
liquidity in the financial market and a negative image of the sector was built
in the eyes of the borrowers.
Each and every HFC’s and NBFC’s are now focused on
reforming the current lendings and not on gearing up its personal growth.
The final quarter of financial year 2020 was assumed as giving green flags
because it took everything into account which prior were limited to enormous
NBFCs which included its development and liquidity, was currently obvious in
even the normal and mid sized NBFC's. Nonetheless, Percentage of non-performing
loans to total gross lending of Major10 countries that have the biggest
economy world were as follows:
France 2.6% , Germany 1.2% , USA 0.9%, Canada
0.4% , UK 1.1% , Brazil 3.1%, Italy 8.1% , India 9.3%, China 1.8% and Japan
1.1%. Here, the issues of quality of assets in private NBFCs and banks, major
lending problems like the defaults in the bonds, and regular issues such as
constant exposure and weakness in the plans and objectives of the big NBFCs has
driven them to fix liquidity of certain NBFC’s in the market.
After advancement of the economy in 1991, financial specialists increased a huge
interest in NBFC's. They deals with advances and lendings , purchase of
stocks, shares, securities, debentures, , chit business , renting and leasing
an hire-purchase among different other NBFC's. NBFC's at a great extent started
to help the Indian economy by putting into infrastructures and real estate
ventures, which is a growing area for a developing country like our own.
that as it may, over the long run they began to have a significant liquidity
crunch in this way coming about into critical fall in their credit ratings
assessments. One of the critical explanations of such crunch was the assets
liability mismatch. NBFC's collect funds by borrowings from other commercial
banks or generally by selling commercial papers, or giving instruments of debt
like bonds, non-convertible debentures, leases and so forth ( short term
Consequently, they loan these short term borrowings to long term
ventures like infrastructure projects which normally gets postponed over a drawn
out period. Therefore, they can't restore their pattern of assets and it prompts
significant liquidity crunch. Moreover, feeble monetary administration and
absence of due ingenuity adds on to the breakdown of such organizations. Every
one of these elements have intensely affected the Indian economy and the
arrangement of constant downsizes in NBFCs, have pushed housing finance
organizations and projects related to infrastructure in emergency too.
Major NBFC’s Crisis
The Il&Fs Crisis And Its Impact
Registered with RBI as mainly Investment Company, Infrastructure Leasing and
Financial Services Ltd. (“IL&FS”) was formed in 1987, which had ORIX, LIC, and
some banks of India like SBI as its institutional Investors . Lately, this
major Investment country in India which had covered 30 years in the field of
infrastructural development came up with a giant debt of almost Rs. 1 lakh crore
as it lately started making defaults in making payments to the lenders and their
responsibilities towards the banks were not fulfilled.
It also failed to meet up
the long term and short term loans and also never completed the responsibility
towards redemption of commercial paper . After these endless mistakes, many
rating institutions like ICRA, CARE, etc., straight forwardly demoted IL&FS and
all the other subsidiary from the position of high investment grade (AA plus)
to the level of junk grade which states awaiting problems and the crisis in
the financial market.
On the worst, these frauds threatened the banks, investors
and mutual funds and created an immense fear to invest in this NBFC’s . Because
of all these tensions, the, National Company Law Tribunal (NCLT) removed the
current Board of Directors of the NBFC IL&FS and the Ministry of Corporate
Affairs (MCA), based on the complaint and charge sheet which was filed by the
Serious Fraud Investigation Office (“SFIO”) complained against all the auditors
of IL&FS including 30 other parties for the crime of criminal conspiracy and
making defaults in the reporting of the statements of the NBFC.
recovery or resolution has been made from the company. In the latest judgment,
the Supreme Court strictly did not allow to encash any of the guarantees of the
bank against the people who were presented as the bank guarantors.
One of the biggest housing firms in India can be named as Dewan Housing Finance
Corporation Ltd. ("DHFL") which is enrolled as a NBFC. After IL&FS issue, the
stock of the company was likewise significantly impeded, by around half
percentage of degradation in it. DHFL defaulted to pay back almost Rs. 900 crore
of interest on the borrowings, making all the institutions of rating to degrade
its rating and its business papers and NCDs to default its position on 4 th
Nonetheless, DHFL made a few endeavors to take care of its
obligation by auctioning off its resources and pulled out its mutual asset
business. On July 6, 2019, DHFL owed Rs. 83000 crores to banks, National Housing
board, bond holders and mutual funds. Further, a scientific audit statement was
additionally led by KPMG and started by a group of lenders, driven by Union
Bank of India, raised doubts that DHFL has redirected the cash Currently, the
CMD of DHFL, Mr. Kapil Wadhawan was arrested by the Enforcement Directorate' He
was accused of money laundering along with involvement in related party
transactions Currently, the Supreme Court has switched its order expressing
that the fixed deposit holders to be paid off earlier than the housing
finance organization begin giving loans .
Another NBFC that can be talked about is Altico Capital Ltd.which mostly deals
with the finances of the real estates and has defaulted in the payment of
interest which amounted Rs. 20 crores which adds up an yearlong NBFC emergency
in Indian financial markets. Atlico has a responsibility to pay Rs. 4500 crores
to the financial market system. Recently, RBI is giving an second thought that
whether Altico should be referred to NCLT because they are internally making
plans to solve the debt resolution plans as of now.
Hence these as it are
expected to work on some debt resolution plans internally. Therefore, these
types of important NBFCs are running out of cash flows and have been making
defaults in payments and have affected the Indian financial market as well as
economy and have therefore thrown it very deep in the pitfall of economy.
A Story Of Mismatches
Indian banks are in their difficulties as they are unable of taking care of the
Non-Performance Assets (NPA) in one way and are trying to expand their capital
to the level that is mentioned under the RBI policies and as per the guidelines
from the BASEL- III rules. Earlier, they had sufficient capacity to give away
loans in the market but now this capability of these NBFC’s has been suppressed
in past few years.
NBFC’s has tried to open new ways to source themselves and
get out of this situation. For example, banks, mutual funds, and lending
internationally. At the point, where they were not able to pay their debts on
the upcoming due dates, they tried their best to keep themselves stable by
opening new ways or by exchanging or rotating finances in the market to pay back
the earlier dues. These situations have perceived different opinions of the
expert in the market and therefore, controllers were not in favor of the idea of
accepting new ways for funding as it can bring more risks to the NBFC’s and can
make them more weak.
The major cause for the emergency with IL&FS and many more NBFCs was because
they opted for is short term loans which can be in a form of mutual funds or
commercial instruments but at the same time they were providing loans for long
term purposes which includes housing loans in various kinds such as real estate,
finances of infrastructure, or loans to the developers. Lately when his fresh
flow of capital got emptied, commitments for payments or to honour to repay was
made worst which bought in the liquidity. Also, developers of the property
were nowhere able for finishing their projects and also are not able to sale
these units on the fixed time.
Hence, the burden of the debt grew which
pressurized them to become helpless as they were unable to repay the outstanding
lending on a fixed date. This issue of liquidity crisis was majorly neglected
through the management of risk department at many companies of finances and it
has been a critical situation for many of the NBFC’s.
Their situation became so
severe and worst that these NBFC’S now started dealing with their side
businesses which also included selling of their major assets of loan to many of
the banks to stay in the market and maintain their liquidity .Therefore, these
lead to degradation in the quality of their assets year by year which made
situation extreme worst.
After a while, raising funds and cash got very much complex, which even was
available was present in the kind of non-convertible debentures (NCDs) which had
its cost at a very high price. The cost of lending in the financial debt market
domestically became at a higher lending cost which was not feasible. Giving
higher significance to security, the Employees' Provident Fund Organization
(EPFO) chose to retain any new interests in private bonds in the sector until
any extra notice. EPFO provides for almost Rs. 25,000 crores to Rs. 40,000
crores in private bonds in the sector.
The office of the provident fund is
wary to the point that it requested that its managers of funding department to
gives ratings by the support of any of the FICO organizations (CRISIL, ICRA,
CARE Ratings, and India Ratings & Research) in any event, when putting resources
into public bonds in the sector . There was a control in lending spreads on
account of the higher global inflows into funds of liquidity in 2019around
During this time many of the companies took advantage and raised their
capitals through this global debt document .Some organizations were sufficiently
fortunate to raise funds through worldwide debt paper. Indiabulls Housing
Finance had the option to make sure about a $350m subsidizing in its first
lending in foreign when it had the option to offer to Asian and European
moneylenders at 6.37 percent.
The arrangement seems costly in light of the fact
that trade costs, retaining assessment, and other such things when represented
increment the powerful rate to 11 percent. Despite the fact that the expense of
acquiring is high, it is in any event ready to keep away from liquidity issues.
Some different organizations, for example, DHFL, it went down to that level that
it had to sell their businesses which were not core or for subsidiaries of joint
venture to orchestrate cash for their obligation for debt repayment.
attempted to locate big financial partners who can fund them and rescue them.
The credit crisis affected loaning in a few different areas, including loans to
consumers and lending in automobiles sector. The developing fin tech credit
stage business got injured in the midst of the emergency since the fund raising
turned out to be excessively costly for some of the business players.
RBI’s Tightening Of Norms Before 2020
NBFCs were requesting some guidelines or ways for methods to balance their
liquidity or to maintain their finances, but RBI neglected their problems as
they felt this COVID crisis is just a situation of money crunch and it is not
fundamentally that important. Instead of that, it better requires a new possible
way to introduce new plans for the better working of the NBFC’s although it was
very late. Later, The nineteenth Financial Stability statement stated that
the huge failure of these NBFC’s will make a very bad impact on the money market
as well as on the banks and it requires more than a mere check or surveys of
Further, The Union Budget of 2019 opened up a new doorway for
accessing the capital inflow and liquidity into these NBFC’s by permitting all
the publically owned banks to grant loans to the NBFC’s that have asset
value up to Rs. 1 trillion that can make these NBFCs monetarily stable and
for this purpose, the government will be allowing assurance of credit for the
major loss of 10%for one and a half year.
Therefore, through this option, banks
were indirectly provided with the new opportunity to purchase those NBFC’s
assets worth Rs. 1 trillion in 2020. Due to which, RBI immediately reexamined
these rules laid down for banks and hence planned to give protection to these
NBFC’s by covering their assets under Basel III standards. Prior to the
Budgetary declaration, RBI's way to handle these typical situations for NBFC
was to stable these companies by fortifying hem and they assumed that the NBFC
can take care of themselves and should balance their funds by complying to
their set norms.
It brought draft rules in June, 2018 that compelled unions
thereby that have more than 11,000 businesses to merge. At that time , the banks
though that this is the best opportunity to merge certain NBFC’s in these
critical times to diversify them . Likewise, Indiabulls Housing Finance and
there subsidiaries are merging with Lakshmi Vilas Bank (LVB).
The Liquidity Risk Management Framework would be applicable to all other NBFCs
which are having Rs. 100 crore of assets and each and every Core Investment
Companies (CIC) which are RBI registered . The Liquidity Coverage Ratio (LCR)
which apply to non-deposit accepting NBFCs which have Rs. 5000 crore assets
have to make it necessary for NBFCs to keep aside the liquidity which is
highly liquidable so that they can be able to meet up all the short term debts.
Steps Taken To Save NBFC’S
NBFCs have played an important and necessary function in the financial markets
of India by supplementing the major area and by acquiring diversity and
viability into monetary intermediation. Notwithstanding, lately, the capital
structure and quality of assets of these NBFCs have crumbled messing up both the
banking and the financial markets of the country.
This represents a gigantic
challenge for the Central Government and along these lines requires rigid
structure to direct NBFCs. On November 15, 2019, the Central Government gave a
notice to introduce NBFC's under the meaning of Financial Service Provider which
thusly would carry any NBFC with assets worth Rs 500 crores or more under the
scope of IBC
It is a positive step and is expected to help limit losses for creditors as
compared to liquidation. In light of the recent notification, on November 20,
2019, RBI commenced the insolvency proceedings against DHFL.
The standards set somewhere by the Central Government is a reformist way to deal
with and help the financial and economic degradation. Besides, an appropriate
resolution plan alongside the most recent standards will help the lenders of
NBFCs which are in distress in recuperating a bit of their debt. While the
current laws which are applicable to a FSP (Financial Service provider) have
demonstrated to be fruitless in handling the current emergency, the current
standards are undeniably more gainful.
The IBC is a powerful enactment and
accordingly the ongoing guidelines should help lessen the issues looked by the
creditors in recuperating debt from these FSP (Financial Service Provider)
(NBFCs) in trouble. Nonetheless, the specific extent of third party assets
should be explained and the notice in such manner from the Government is
anticipated. As expressed already, the guidelines are essentially critical and
will go about as an interaction between resolution plan as provided in IBC and
the standards of financial companies.
It will bring truly necessary break for
the stakeholders engaged with NBFCs as they currently have a way to actualize a
resolution plans. The current structure gives that this is an important measure
and a comprehensive act in such manner will be urgent. The execution of this
system will be investigated cautiously as it advances with the resolutions of
NBFCs being embraced by the way of these regulations.
Measures by RBI
The RBI through the way of RBI Relief Package, has presented the Targeted
Long-Term Repo Operations (“TLTRO”). The banks which involved future risks,
utilised the money which was received as a borrowing from RBI at the time when
the repo rates were reduced , in investing in debt securities of only those
companies which are ranked on top and have enough capital inflow, thus
dispiriting the major objective of the relief package given by RBI.
Consequently, the revised Targeted Long-Term Repo Operations (“TLTRO 2.0”) was
presented by RBI so as to maintain the liquidity in the market of small and
medium sized companies 50% of the liquidity for the purpose of TLTRO 2.0
has been aimed at the crucial financial sector being 10% of the cash which has
been flowed so that it can be used to buy out stocks which are sold by
microfinance companies, 15% for NBFCs which have assets worth of INR 500
crore or less and 25% was given to stocks and securities of NBFCs which range
from INR 500 crore to INR 5,000 crore. Additionally, The RBI on decreased the
reverse repo rate - the rate at which banks stable their asset with the national
bank up to 25 basis points focuses to urge banks to loan to the gainful areas of
Till now, many measures have been taken to safeguard the sector of para
banking industry from this COVID crisis which has completely disturbed the
finances of these firms after the release of the “relief package” which has been
provided by RBI in March ,27. This was enhanced with nitty gritty of guidelines
dated April 17, 2020 from the RBI concerning classification of assets and
provisioning standards ("RBI Relief Package") which was planned to lighten
According to the RBI Relief Package, the organizations which
gives loans by the way of NBFCs were allowed to give a moratorium for a
quarter of a year on installment due between March 1, 2020 and May 31, 2020.
Currently, this has been extended by the RBI upto three i.e., from June 1,
2020 to August 31, 2020, vide the notice dated May 23, 2020. As we know , NBFCs
utilize the money which is collected from the repayment of the money by the
borrowers in installments to fulfill their debts which has been borrowed by the
Giving away a moratorium to the borrowing party on installment
of loans means something bad for the area as the NBFCs as it work on
exceptionally short term liquidity which has been mentioned in their financial
Measures by Government
Being a piece of the five-trenched INR 20 Trillion stimulus package, the
Indian Government has tried to offer liquidity help to the NBFC’s which
amounts to INR 75,000-crore to the financial markets and the banking sector.
This help offer has been issued under two different policies.
Accordingly, the first policy presents for the institution of a INR
30,000-crore unique fund of liquidity, after which it will be observed that the
investments that are made in the sector will be wholly made would be fully be
assured through the Government of India. The Union Cabinet offered its
post-facto sanction to this unique liquidity programme on May 20, 2020. In
this policy, the Government would be establishing a special purpose vehicle
(“SPV”) which will be granting interest containing unique securities which will
not exceed INR 30,000 crore to the RBI, and will be assured by the Government
The proceeds from such policy will be utilized by the SPV for
investing in to invest in venture grade securities held by the NBFCs, micro
finance institutions and housing finance companies. The second policy has
already being implemented which includes partial credit guarantee scheme which
amount to INR 45,000-crore, which has been exceeded for providing 20% first
defeat guarantee cover for the investments made in lower-rated and unrated
securities of NBFCs.
securing of debts by the Government from the para banks in this sector is the
first step by the Government. Banks have been ignoring these since a long time
and the government on seeing this has taken a really important decision in his
regard. In a monetary framework as of now timeworn by terrible obligations, the
truth will surface eventually how much and how much the sovereign ensures will
have the option to give upgrade to the banks to loan liberally to the feeble
As the Government and the RBI plan to fill the economy with liquidity
inflow with their stimulus packages in the shorter span of time and controlling repo activities individually, the banks may in any case need to proceed with
caution by surveying the reasonability of their borrowers in light of a
legitimate concern for their asset reports in the more coming future.
of Baroda will examine the NBFC’s loan range to evaluate the quality of its
assets , possessions o capital, major shortcomings developed in the
market. Recently, the Bank of Baroda has followed up the scrutiny process by
handling charge to the management which are empaneled with the Indian Banks'
Association that can assist in the process.
Measures by SBI and other banks
The directors of the stated that all the institutions of lending just like
banks, Non-banking Finance Companies (NBFCs), Micro Financial Institutions
(MFIs) Housing Finance Companies (HFCs), and others will allow term loan
lenders and credit card lenders a moratorium for three months for paying all
the installments that are due and are falling within 1 March to 31 May 2020.
Also, RBI has also allowed for deferring revival of interest which apply to
credit on cash basis and overdraft services within the time frame of 1st March
to 31 May, 2020. Al though interest will be accruing continuously on the
outstanding segment of the term loan, Overdraft facilities (OD) or Cash Credit
(CC) in between the moratorium phase. Further, In CC and OD services, all the
joint accrued interest will be recovered after this period is completed
immediately on that given figure.
The directors also included that these financial institutions should be made in
the manner of Board-approved regulations that provide for above stated grants
to specifically “all eligible borrowers” that exempt the three-month moratorium
verdict on the financial company’s regulations. So these institutions stated
that they have allowed all the borrowers to get benefit of the three-month
moratorium relief .
Hence SBI allowed the selective NBFC’S for a moratorium of 3 months and have
now extended it further. SBI will also assist NBFCs by providing them with
exceptional loans of Rs 50-200 crore for a period of five years. Bank of India,
one more public sector bank has allowed this kind of facility to the NBFC.
Impacts On NBFC
- Business Structure
- COVID-19 has upset the plan of action and organizations are facing
difficulty in this new change, which will lead to a major change in the
working of each firm and the regular cycles in associations.
- These institutions will be in he dire need of new management techniques
to maintain the stability in the market,. The emphasis should be on progress
in quality of assets rather than accounting report development or financial
statement's growth in the next term.
- Companies must put resources into innovation drove underwriting devices,
for example, digital lending, video-based individual conversation, TAB-based
on loan application and C-KYC.
- Liability issues:
- Although measures by the RBI would help making the liquidity flow at a
much faster pace to the area, it may not prompt the capital flow in the
economy as these organizations would prioritize liquidity over the financial
- While RBI declared that funds under TLTRO 2.0 must be conveyed in
investment-grade instruments only, most of MFIs in the small and medium-sized
classification don't have a investment rating. This would seriously affect the
position in terms of liquidity in such MFIs and would prompt asset liability
management (ALM) for the time being.
For an area that was at that point focused on, the RBI Relief Package has
further created problems to them which can be called as asset-liability
mismatch  While the NBFCs are coordinated to offer the moritorium to its
borrowers, lenders of the same have been hesitant to expand a similar relief.
The difficulties are considerably more deep for NBFCs who have most sharing in
the capital market borrowings because no moratorium has been stated for
borrowings from capital market.
An interim relief in regard of deferment of
services of its business papers and bonds was looked for in the Delhi High Court
in the case of Indiabulls Housing Finance vs. Securities and Exchange Board of
India and was withdrawn by Delhi High Court order dated May 05, 2020. The HDFC Bank was allowed to fit the fixed price for installments that was to be
paid back again during the moratorium period was ongoing . This clearly mentions
the unwillingness of the banks to provide any discount on payment or
repayment by NBFCs with respect to RBI Relief Package.
The major point of contention for the banks is that if this moratorium is given
to them, they will use this in managing their liquidity . They will not lend
instead they will pay back their debts in the market . The investors have been
perusing to restrict the NBFCs from the moratorium relief under RBI Relief
They want them to use the RBI liquidity window at the given repo rate
to address their issues. It all happened when the RBI forced the banks to
consider this issue and after that only some banks have taken this into
consideration for allowing moratorium for the NBFC’S on case bases after
applying diligence towards it after the genuine request from the customers.
- Lending cooperations will be going to witness major misconducts a
scurrently, the business action would seriously affect income of borrowers
- NBFCs and HFCs, which have high presentation to Tier II and Tier III ,
they are probably going to face higher rate if misconducts.
- Collecting from project loans are required to be in a slower pace as the
real estate is vigorously affected because of the absence of accessibility
of labor, deficiency of funds, and absence of request of house purchase by
the consumers will amount to unsold inventories.
- However the RBI has diminished repo rate by 2.1% over the most recent
couple of months, the decrease in MCLR has just been 50 bases points Banks
connect their lending to repo rates, while NBFCs and HFCs don't. This would
empower banks to change the interest rate very easily. Subsequently, the lending
organization would almost certainly encounter a flood which includes bank
transfers to banks, particularly by clients with great reimbursement track.
- Over 8,000,000 retail borrowers of HFCs and NBFCs would be not able to
enjoy the three-month moratorium as such lending corporations have now
securitised these credits..
Presently, the NBFC Regulations are not as tough as that of the banks. To have a
rigid administrative arrangement, there is a prerequisite of a risk official who
will occasionally survey the working of the NBFCs and an independent audit group
to keep an eye on their books of records. Further, there must be a framework to
survey the liquidity coverage ratio necessity to deal with ASM ( Assest
Liability Mismatch) which is a main concern of the current emergency.
shadow banks are yet to totally assimilate the fundamental stun following
defaults by IL&FS and DHFL and a resulting liquidity crunch. Plus, taking into
account that most NBFCs have acquired short term finances to subsidize the long
term finances , they had the option to ceaselessly renegotiate their borrowings
as long as liquidity conditions were simple.
As liquidity fixed, they were left
confronting debt reimbursement difficulties and possibilities of rating
downsized. To guarantee more prominent flow of credit, from banks to NBFCs, RBI
will expand exposure limits from 20% to additional 25% to permit banks to loan
to NBFCs for on-lending to clients. This will guarantee restoration of capital
situation of these striving non-banks.
Several learning arise out of these actions of RBI. To begin with, the RBI can't
exclusively depend on a strategy of usual business structure where liquidity and
rate decreases do the stunt of arriving at credit which is affordable to the
individuals who need it the most.
The national bank needs to consider straightforwardly giving funds to wraps of
the economy where banks or speculators like mutual funds dread to step. Direct
bearing of risk could appear as a unique medium-term and long term credit window
for MSMEs and a window of liquidity for NBFCs.
The second significant learning is that administrative endurance is basic. For
India's situation it basically implies weakening the inflexible NPA's
(non-performing assets) standards however long the Covid-19 impacts wait.
Organizations will confront income issues because of the extraordinary
interruption in monetary action. That would prompt specialized defaults. Except
if these are ignored, the RBI can keep on implanting liquidity flow and slash
rates in the economy, the dread of making another heap of bad loans will prevent
banks from lending in near future.
Unconventional actions frequently will in general run into legal actions.
Notwithstanding, in the center of an extreme emergency, the national bank can't
dismiss choices just in light of the fact that, state, the Banking Regulation
Act seems to disapprove of it. Providing autonomy for new developments and
discover specialties in the monetary markets where a piece of these unique
facilities can be roosted.
A nation's national bank is supplied with the novel
capacity to assimilate monetary risks without worrying about the nature of its
balance sheet. The RBI should assume this part of daring after all other options
have run out and declare a these unconventional measures at the earliest
- The major Core power of NBFCs involve customer base, confined
channels of distribution’ fast services, major risks, easily changeable business
structure, etc. The NBFCs are experts in accepting new technologies which
majorly has assisted them in the management of their functions in a better way
so this time too it can be used for evolving
- Give more stress to the behavioral changes in the clients by helping the
existing clients growing more easily. This can be done by increasing
profits, lessen the COA (cost of acquisition), providing them with time, support and
loyalty. Also, customers However, customer maintenance can be done easily by
moving from high cost ways and options to low cost options even when the
frequency grows too many.
- NBFC’s can extend their business line in various ways either by the
help of partner or by their innovating ideas. They must move from provisioning
of product to service oriented. They can expand in various areas of MSME’s B2B
services like business consulting.
- They while giving loans to the customers must comply with the following
terms such as credit worthiness of the customer or validation of documents
must be checked , and further other backgrounds before lending any
institutions to safeguard themselves against the repayment.